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How are Dividend Quality Scores computed?

posted this on June 27, 2012, 8:38 AM

Our Dividend Quality Score is based on our assessment of Dividend Quality, Dividend Quality Trend, and Dividend Coverage.

We assign the following star ratings for Dividend Quality:
High Quality Dividend:      4-stars
Medium Quality Dividend: 2-stars
Low Quality Dividend:       1-star


To evaluate Dividend Quality Trend we look at how many years out of the last 5-years the company has paid out High, Medium, and Low Quality Dividends.
Consistent High Quality Dividends:                          4-stars

Combination of High & Medium Quality Dividends: 3-stars 
All Medium Quality Dividends:                                 2-stars
Combination of Medium & Low Quality Dividends:  1-star
Persistent Low Quality Dividends:                            0-star

We look at the ending cash balance, with a Dividend Coverage multiplier in the following brackets:
<1x       0-star
1x<3x   2-stars
>3x       4-stars

To arrive at the overall Dividend Quality Score for a company we aggregate its scores for each of the three components above.
Note that unlike Fundamental Analysis scores which are based on a company's performance relative to its peers the Dividend
Quality score captures the quality, trend and coverage of a company's dividend. However, we do provide charts and graphs in
our Dividend Quality reports that show the dividend quality performance of the company relative to its peers.